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MENAFN - Khaleej Times - 10/10/2012

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(MENAFN - Khaleej Times) Standard & Poor's has revised 2012 growth forecast for GCC economies to five per cent from four per cent previously on increased revenues from rising oil prices.

Economists at the ratings agency said a consistent upswing in oil revenues is creating a fertile environment for credit growth, particularly in the Gulf's oil-exporting economies. "However, tough global economic conditions and continued political tension in the region following the Arab Spring should remain key challenges over the coming months," they said.

"We believe robust oil prices will remain sustainable throughout the rest of the year and into 2013. Over the past three months, we have raised our assumptions for natural gas prices in 2012 to 2.50 per barrel from 2.0 and to 3.0 in 2013 from 2.75, while maintaining our oil price assumptions for Brent at 100 and 90 per barrel for 2012 and 2013 respectively," credit analysts Tommy J Trask and Karim Nassif wrote in their report.

On the region's credit outlook, Standard & Poor's observed that corporate and infrastructure issuers may increasingly rely on sukuk, the Islamic equivalent of bonds, as a source of funding in coming quarters.

"Sukuk issuance in GCC-has reached a record high this year, propelled by positive developments in the region's economy and capital markets. Yields have fallen dramatically on both conventional and sukuk capital market issuance in the past year. This trend was supported by the GCC financial system's sound liquidity, local investors' strong appetite for debt, and accommodative monetary policies around the world," they said.

The analysts noted that as access to capital markets widened, several corporate issuers in the region were able to successfully refinance large amounts of debt falling due, notably by tapping the sukuk market. "We also expect the project finance sector, including real estate and transport projects, to increasingly rely on sukuk issuance to fund transactions."

The ratings agency's analysts said uncertain global economic conditions, diverging property markets across the GCC, and continued political tension remains key challenges.

"We think demand for office space will continue to lag supply in most GCC markets, and the situation could worsen once projects that are currently being developed are delivered," they said.

Oversupply is already affecting the region's major capital cities, with vacancy rates of 15 per cent or higher.

Over the past six months, the performance of residential property markets across the region has varied depending on location, although most GCC markets are stabilizing after four years of significant declines, they said.

"The Dubai residential segment has strengthened significantly in more established locations, such as Downtown, Dubai Marina, Emirates Living, and Palm Jumeirah, but remains weak in secondary locations. With significant additional supply expected in places like Dubai, Abu Dhabi, Doha, and Muscat, we don't foresee a significant increase in rental or capital values in the near term, apart in select sought-after areas and developments where supply is limited. By contrast, the Saudi government's sizable stimulus measures and new mortgage law will likely continue to underpin demand for residential real estate and land, in our view," the analysts said.

S&P's said the GCC retail property market would be driven more by supply than demand over the next two to three years. "In Dubai, where additional supply remains limited, prime rents have strengthened. Rents were stable in other major markets such as Abu Dhabi and Doha, although significant development pipelines will likely put these to the test."

"In the hospitality sector, Dubai continued to perform strongly in 2012 thanks to its perceived status as a safe haven within the region. Abu Dhabi saw its hospitality sector weaken, despite a 23 per cent rise in passenger volumes at the Abu Dhabi International Airport (including transit passengers) in the first half of 2012, compared with an equally impressive 14 per cent rise at Dubai International Airport," the analysts said.


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